Economics explained of "THE BIG ONE"
NewParadigm
Posts: 1,322
Here it is. The economic explanation of why our coins will be worth less - luckily, there is a space between "worth" and "less."
Below, this is a diagram that illustrates the equilibrium between supply and demand before "the big one." "S" is the supply curve. This shows as the price of the coins (or any item in the world) increase, people who own the coin or item will be more inclined to sell it in the market (vice versa). "D" is the demand curve. This show that at a low price the demand curve starts high and decreases as the price increases. This is from the point of view from the buyer.
The next chart, simply, shows that rarity and grade are related. Rarity and price can be substituted.
Here we go: "The Big One" happened. S1 intersects at D and that was the out equilibrium, where buyers and sellers met on the agreed market price. NOW, the big one has more coins at a higher grade. This lowers the value of coins that are graded above the "+" due to more supple. THUS, the Supply curve shifts to the right, indicating more supply, while demand is constant (there may be more demand for the + coins, but not for the coin market). The new equilibrium is where S2 and D intersect, showing that there are higher grades (quantity of higher grades) and the intersection is at a lower price.
If NOTHING changes, our coins are devalued.
In order to preserve the value of the coins, one of the two solutions below MUST happen.
The first is that there is an INSTANT flood of NEW buyers. I am not saying some people join, the demand needs to increase SIGNIFICANTLY. If this happens, then the coins wont be devalued. Since S1 shifted to the right to S2 (higher quantity of higher graded coins), D1 needs to shift to D2. The new equilibrium is where S2 and D2 meet. The additional demand compensated for the increase quantity.
Sorry for the cut off of S2
OR, there needs to be "down grades" of a proportion to upgrades 2.25:1. So a if there are 10 new +'s, there needs to be 22.5 downgrades to maintain the old price. The reason for the 2.25 ratio is that the MS70 ceiling in a closes that the grade floor, so additional consideration needs to b e applied to the downside.
That said, since S1 shifted to S2, they need to downgrade coins to soak up the excess quantity of higher grade coins, so the supply curve shifts to S3. When thy average out, S1 become the new and old average, preserving the old equilibrium.
Below, this is a diagram that illustrates the equilibrium between supply and demand before "the big one." "S" is the supply curve. This shows as the price of the coins (or any item in the world) increase, people who own the coin or item will be more inclined to sell it in the market (vice versa). "D" is the demand curve. This show that at a low price the demand curve starts high and decreases as the price increases. This is from the point of view from the buyer.
The next chart, simply, shows that rarity and grade are related. Rarity and price can be substituted.
Here we go: "The Big One" happened. S1 intersects at D and that was the out equilibrium, where buyers and sellers met on the agreed market price. NOW, the big one has more coins at a higher grade. This lowers the value of coins that are graded above the "+" due to more supple. THUS, the Supply curve shifts to the right, indicating more supply, while demand is constant (there may be more demand for the + coins, but not for the coin market). The new equilibrium is where S2 and D intersect, showing that there are higher grades (quantity of higher grades) and the intersection is at a lower price.
If NOTHING changes, our coins are devalued.
In order to preserve the value of the coins, one of the two solutions below MUST happen.
The first is that there is an INSTANT flood of NEW buyers. I am not saying some people join, the demand needs to increase SIGNIFICANTLY. If this happens, then the coins wont be devalued. Since S1 shifted to the right to S2 (higher quantity of higher graded coins), D1 needs to shift to D2. The new equilibrium is where S2 and D2 meet. The additional demand compensated for the increase quantity.
Sorry for the cut off of S2
OR, there needs to be "down grades" of a proportion to upgrades 2.25:1. So a if there are 10 new +'s, there needs to be 22.5 downgrades to maintain the old price. The reason for the 2.25 ratio is that the MS70 ceiling in a closes that the grade floor, so additional consideration needs to b e applied to the downside.
That said, since S1 shifted to S2, they need to downgrade coins to soak up the excess quantity of higher grade coins, so the supply curve shifts to S3. When thy average out, S1 become the new and old average, preserving the old equilibrium.
0
Comments
Thats an intersesting proposition you have there and worth a discussion .....that is, if according to Mr Hall approximately 15% of pcgs coins are candidates for a + sign then perhaps 15% OR AS YOU SUGGEST 22.5% are/ or should be candidates for a minus sign.
I think another member of the board alluded to this scenario in a recent thread ( ie: in the context of the big announcement, should a pcgs coin be identified as a minus or "dreck" coin on the holder as well)
Pcgs has decided against this policy of identifying and downgrading coins in existing pcgs holders for obvious reasons.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
The coin market prices most coins individually (at least significant collector coins). Always has and always will. PQ coins have traded at a premium in the past and The Big One will not necessarily impact pricing in any way. It may, however, entice some people to pay more for PQ coins, based on the third party acknowledgement of quality. We will have to see.
merse
<< <i>....... NOW, the big one has more coins at a higher grade. This lowers the value of coins that are graded above the "+" due to more supple. THUS, the Supply curve shifts to the right, indicating more supply, while demand is constant (there may be more demand for the + coins, but not for the coin market). The new equilibrium is where S2 and D intersect, showing that there are higher grades (quantity of higher grades) and the intersection is at a lower price.... >>
Unless I missed it, you didn't account for coins that might receive a lower grade - coins that get a plus designation, which previously might have received the next grade up, instead??
<< <i>"D" is the demand curve. This show that at a low price the demand curve starts high and decreases as the price increases. This is from the point of view from the buyer. >>
I'm not sure I "buy" this. If QUANTITY is the independent variable (which it is), then wouldn't the price increase as quantity DECREASES? Thus there is an inverse proportionality.
<< <i>The next chart, simply, shows that rarity and grade are related. Rarity and price can be substituted. >>
Again, rarity should be inversely proportional to grade. High grade coins are more scarce than low grade coins. I'm assuming we're ignoring modern coinage.
PCGS must be right. Their presentation slides were much prettier.
But I like yours. I drew stuff like this in college, after a lot of partying, and I remember being totally convinced of myself. More power to you.
Lance.
<< <i>abitofthisabitofthat: if there were no grades, it would be all subjective. Once you grade a coin (quantify it), my argument will hold true... Now, for other collector markets that do not have a quantifiable and verifiable measurable scale, then maybe not. However, the contrary is the case. >>
I am not sure what you mean by subjective, as you seem to imply that third party grading removes the subjective nature of valuing a coin. Take a cursory glance at auction prices realized for any coin in a particular grade. Prices will vary dramatically based on the quality of the specific coin. The fact that they were 'quantified' the same way by a grading service does not mean that they have the same value. There is not a single supply/demand equilibrium point for a specific issue certified at a particular grade. Therefore, any attempt to utilize classical economic supply / demand analysis will not yield meaningful results.
merse
Exactally. Without a - grade, you are going to pay the same amount for good coins and low quality coins, but for the best coins you are going to pay more (prices are going up). But for the good-for -the -grade and the low-for-the-grade you will still pay the same amount. I believe that without a - grade to go with the + grade, then the whole thing is more or less a sham. I'm not saying that is not important to help collectors when there are $$$$$$$$ on the line from one grade to the next, but this is mainly helping the dealers,not the collector. What helps the collector is to avoid paying $$$$$$$$ for the low-end-for-the-grade, but that might hurt the dealers, and oh nooooo, we don't want to hurt our little dealers.